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Econophysics review: I. Empirical facts

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Author Info

  • Anirban Chakraborti
  • Ioane Muni Toke
  • Marco Patriarca
  • Frederic Abergel
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    Abstract

    This article and the companion paper aim at reviewing recent empirical and theoretical developments usually grouped under the term Econophysics. Since the name was coined in 1995 by merging the words 'Economics' and 'Physics', this new interdisciplinary field has grown in various directions: theoretical macroeconomics (wealth distribution), microstructure of financial markets (order book modeling), econometrics of financial bubbles and crashes, etc. We discuss the interactions between Physics, Mathematics, Economics and Finance that led to the emergence of Econophysics. We then present empirical studies revealing the statistical properties of financial time series. We begin the presentation with the widely acknowledged 'stylized facts', which describe the returns of financial assets—fat tails, volatility clustering, autocorrelation, etc.—and recall that some of these properties are directly linked to the way 'time' is taken into account. We continue with the statistical properties observed on order books in financial markets. For the sake of illustrating this review, (nearly) all the stated facts are reproduced using our own high-frequency financial database. Finally, contributions to the study of correlations of assets such as random matrix theory and graph theory are presented. The companion paper will review models in Econophysics from the point of view of agent-based modeling.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/14697688.2010.539248
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

    Volume (Year): 11 (2011)
    Issue (Month): 7 ()
    Pages: 991-1012

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    Handle: RePEc:taf:quantf:v:11:y:2011:i:7:p:991-1012

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    Web page: http://www.tandfonline.com/RQUF20

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    Related research

    Keywords: Computational finance; Correlation; Econophysics; Empirical finance;

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    Cited by:
    1. Desislava Chetalova & Thilo A. Schmitt & Rudi Sch\"afer & Thomas Guhr, 2013. "Portfolio return distributions: Sample statistics with non-stationary correlations," Papers 1308.3961, arXiv.org, revised Jun 2014.
    2. Paulo Ferreira, 2012. "Testing serial dependence in the stock markets of the G7 countries, Portugal, Spain and Greece," CEFAGE-UE Working Papers 2012_24, University of Evora, CEFAGE-UE (Portugal).
    3. Carl Chiarella & Xue-Zhong He & Lei Shi & Lijian Wei, 2014. "A Behavioural Model of Investor Sentiment in Limit Order Markets," Research Paper Series 342, Quantitative Finance Research Centre, University of Technology, Sydney.
    4. Salvador Pueyo, 2013. "Is it a power law distribution? The case of economic contractions," Papers 1310.2567, arXiv.org.
    5. Mehdi Lallouache & Fr\'ed\'eric Abergel, 2013. "Tick Size Reduction and Price Clustering in a FX Order Book," Papers 1307.5440, arXiv.org, revised May 2014.
    6. Ladislav Kristoufek, 2013. "Testing power-law cross-correlations: Rescaled covariance test," Papers 1307.4727, arXiv.org, revised Aug 2013.
    7. Ioane Muni Toke, 2013. "The order book as a queueing system: average depth and influence of the size of limit orders," Papers 1311.5661, arXiv.org.
    8. Li-Xin Wang, 2014. "Dynamical Models of Stock Prices Based on Technical Trading Rules Part II: Analysis of the Models," Papers 1401.1891, arXiv.org.
    9. Li-Xin Wang, 2014. "Gaussian-Chain Filters for Heavy-Tailed Noise with Application to Detecting Big Buyers and Big Sellers in Stock Market," Papers 1405.2220, arXiv.org.
    10. D. Sornette, 2014. "Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based models," Papers 1404.0243, arXiv.org.
    11. Tu, Chengyi, 2014. "Cointegration-based financial networks study in Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 402(C), pages 245-254.
    12. Schinckus, C., 2013. "Between complexity of modelling and modelling of complexity: An essay on econophysics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(17), pages 3654-3665.
    13. Daniel C. Wagner & Thilo A. Schmitt & Rudi Sch\"afer & Thomas Guhr & Dietrich E. Wolf, 2014. "Analysis of a decision model in the context of equilibrium pricing and order book pricing," Papers 1404.7356, arXiv.org.
    14. Seemann, Lars & Hua, Jia-Chen & McCauley, Joseph L. & Gunaratne, Gemunu H., 2012. "Ensemble vs. time averages in financial time series analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(23), pages 6024-6032.
    15. Gao-Feng Gu & Xiong Xiong & Yong-Jie Zhang & Wei Chen & Wei Zhang & Wei-Xing Zhou, 2014. "Stylized facts of price gaps in limit order books: Evidence from Chinese stocks," Papers 1405.1247, arXiv.org.

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